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Credit constraints, equity market liberalization, and growth rate asymmetry

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  • Popov, Alexander
Abstract
This paper provides evidence that financial openness is an important determinant of growth rate asymmetry in emerging markets. I exploit exogenous shocks to financial flows and examine the impact of equity market liberalization on the skewness of output growth for 93 countries during the 1973–2009 period. I show that opening the economy to foreign portfolio investment results in a substantially higher negative skewness of output growth. This result obtains with equal strength in the aggregate data and in the sectoral data, and it is disproportionately stronger in sectors that require more external finance. The skewness effect of financial openness is stronger in countries which experienced a banking crisis after liberalization.

Suggested Citation

  • Popov, Alexander, 2014. "Credit constraints, equity market liberalization, and growth rate asymmetry," Journal of Development Economics, Elsevier, vol. 107(C), pages 202-214.
    • Handle: RePEc:eee:deveco:v:107:y:2014:i:c:p:202-214
    DOI: 10.1016/j.jdeveco.2013.12.004
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    5. Burgess, Matthew G. & Langendorf, Ryan E. & Ippolito, Tara & Pielke, Roger Jr, 2020. "Optimistically biased economic growth forecasts and negatively skewed annual variation," SocArXiv vndqr, Center for Open Science.
    6. Popov, Alexander, 2017. "Evidence on finance and economic growth," Working Paper Series 2115, European Central Bank.
    7. Gemma Estrada & Aitor Erce & Donghyun Park & Juan Rojas, 2018. "Skewed Credit and Growth Dynamics after the Global Financial Crisis," Working Papers id:12939, eSocialSciences.
    8. Atanas Pekanov & Margit Schratzenstaller-Altzinger, 2019. "A Global Financial Transaction Tax. Theory, Practice and Potential Revenues," WIFO Working Papers 582, WIFO.
    9. Reda Cherif & Fuad Hasanov & Lichen Wang, 2018. "Sharp Instrument: A Stab at Identifying the Causes of Economic Growth," IMF Working Papers 2018/117, International Monetary Fund.
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    11. Bezemer, Dirk & Zhang, Lu, 2014. "How the credit cycle affects growth," Research Report 14026-GEM, University of Groningen, Research Institute SOM (Systems, Organisations and Management).

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    More about this item

    Keywords

    Financial openness; Business cycle asymmetry; Development;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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